A business contract is an agreement binding the two consenting parties to facilitate an exchange of benefits. The agreement is enforceable in courts of law if there is a breach by either party.
Introduction to Business Contracts
A business contract, as commonly understood, is an agreement that legally binds two consenting parties for an exchange of product and/or services for monetary considerations. There are also other types of business contracts that may not involve any transfer of goods or services but instead are agreements between two companies for business collaboration.
A business contract is meant to be acted upon by both the signatories, and a breach of contract will entail legal proceedings in a court of law with payment of damages by the defaulting party. The one assured way to avoid possible litigation is for the two consenting parties to carefully study all the agreement clauses and satisfy themselves that they are all capable of fulfilling their promises.
Need for Business Contracts
Business contracts are generally signed when the following situations arise:
- When engaging the services of an outside contractor who may be either an individual or an organization.
- Buying/selling of goods or services.
- Sales agreement particularly if the transaction pertains to buying/selling of real estate.
- Lease agreements when land, buildings or machinery is leased out by the owner.
- Selling/Buying a running business with all assets and liabilities.
- Partnership companies/ joint venture companies among the partners.
- Appointment of franchisees/commission agents for business promotion.
Apart from the likely situations cited above, there could also be many other occasions when the need for a business contract may arise.
Types of Business Contracts
There are essentially two types of business contracts – oral and written. Quite often for regular business transactions and short-term projects, an oral contract should suffice. In all such cases, an oral contract is deemed as valid as a written contract. Oral contract is also admissible in courts of law – but because of its very nature, it could be subject to infirmities and can be difficult to establish the truth in courts.
Written business contracts are much safer and any breach by either party can be well established in law courts. Written business contracts are made out on paper or in this computer age, they are also electronically. Lawyers will be happier arguing in courts on the basis of a written business contract than an oral contract because it is much easier for courts to uphold the disputant’s claims when things are unambiguously written down on paper.
Going through Pros and Cons of a Business Contract
Business contracts need not necessarily contain incomprehensible jargon. All that is required is the language should be precise, and that the draft is forthright and free from ambiguities. The terms and conditions must be stated categorically without giving room for misinterpretations at a later date. You may want to refer to law books while writing a business contract. Local and regional regulations as well as federal laws must be kept in mind while drafting the business contract. When in doubt, it is preferable to consult and take the help of a business attorney.
It is necessary to spend time to patiently read and understand every line and word of the contract that appears in fine print. Finally, before signing and sealing the business contract, do not fail to show it to some trusted lawyers to ensure there will be no problems in future.
E-Contracts and Signatures
Electronic contracts and signatures are now recognized as legally valid under the Electronic Signatures in Global and International Commerce Act, 2000. There is e-contract software available in the market in the standard format and one can send and receive written contracts online with the parties sign electronically. Though e-contracts are legally binding, many businesses still prefer to have written business contracts with physical signatures because e-signatures can be dubious. The fact is people want to be overly cautious when it comes to business contracts and do not wish to leave anything to chance.
Conclusion
For business contracts to be valid and sustainable in law courts, both the consenting parties should initial each page of the agreement, and finally affix their full signatures and date the last page. In most cases, the agreement will also have to be signed by two witnesses (one from either side) to lend further credence.
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